By now you’ve probably heard of a little thing called tax reform. The Tax Cuts and Jobs Act is the most significant change to tax legislation in 30 plus years. Its impact if far reaching for individuals and businesses alike. For some great resources on its impacts, go here.
One of the key provisions of the act is the change in deductibility of entertainment, meals and transportation fringe benefits.
Before tax reform took effect, businesses could (in general) deduct 50 percent of business-related entertainment and meals. Qualified transportation fringe benefits were also deductible, as were employee meals provided by an employer on its premises for convenience.
Tax reform (you guessed it) changed all that. Here are a few of the changes:
- Entertainment, amusement or recreation expenses, membership dues for clubs and expenses for facilities related to these items are no longer deductible. Meals consumed during these events remains at 50% deductible.
- Employee meals provided by an employer on its premises are now only 50 percent deductible through 2025. After 2025, these expenses are no longer deductible. There are no changes to the 100% deductibility for holiday parties or similar social events for all employees.
- Qualified transportation fringe benefits and some expenses related to commuting transportation for employees are no longer deductible.
So what do I do?
Here are a few tips:
- Look at your bookkeeping procedures for your company. How will you capture expenses differently in 2018 and beyond?
- Make sure you’re documenting and correctly tracking expenses. This impacts ALL expenses from January 1, 2018 on.
- Review your expense reimbursement policies. There’s a pretty good bet that some of the language in there needs to change to comply with the new tax reform act. For a list of some of the questions we’ve encountered already, check out this article.
Ultimately, your course of action will vary based on your particular circumstances as well as updates from the IRS. If you have questions, ask your business advisor or CPA. The new tax reform act can be complicated, but we can help ensure your business is on track and maintaining your books correctly.